The big misconceptions holding holacracy back
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Transcript of The big misconceptions holding holacracy back
ORGANIZATIONAL STRUCTURE
The Big MisconceptionsHolding Holacracy Backby Georges Romme
SEPTEMBER 10, 2015
One important reason why there are so many very badly managed firms in the world today
is the widespread belief that management should be the responsibility of a few people at
the top. The future of corporations may therefore depend on the rise of distributed forms
of management, such as holacracy.
Don’t cringe. True, Zappos’s recent experience with holacracy, as widely reported in the
media, demonstrates that the transformation to distributed management is not easy.
Holacracy was supposed to revitalize the online shoe store’s culture and its reputation as a
fun place to work, but the ever-expanding circles of responsibility that have emerged
within the company and the resultant endless meetings are becoming a drain on
productivity.
Still, the essential concepts behind holacracy offer perhaps the best hope of easing top
managers’ stranglehold on companies and, by extension, on innovation. As Clayton
Christensen and many others have demonstrated, the management practices prevailing in
most companies tend to stifle any dialogue on ideas that arise from the shop floor or the
front line.
The real problem with holacracy isn’t the ideas behind it but the persistence of a few false
beliefs that have grown up around it. Three misconceptions, in particular, have been
particularly damaging: that holacracy is non-hierarchical, that implementation specifics
aren’t important, and that the board’s functioning shouldn’t be affected. These
misconceptions lead CEOs and other would-be change agents to underestimate the
challenges arising from holacracy. As a consequence, they end up merely inventing “clever
titles to replace those at traditional corporations.”
I’ll address those misunderstandings, but first it’s worthwhile to take a look at where
holacracy came from. Brian Robertson’s adoption of holacracy in Ternary, the software
company he founded, didn’t come out of the blue. His distributed-management approach
drew inspiration from an earlier model, sociocracy. The two approaches share a set of key
principles and practices, with the main differences arising from jargon: Sociocracy,
developed in the 1970s, was based on principles of cybernetics; holacracy represents a
repackaging of the principles in the vocabulary of software engineering.
The key idea of both is that management should be viewed as a mechanism — an
“operating system” in holacracy — for distributing power and leadership throughout the
organization. Information and authority flow in linked circles, with people taking on
shifting roles as needed. For engineers familiar with the concept of distributed intelligence
in systems, this is an easily understandable, even obvious, form of structure. But it
challenges most people’s deeply rooted notions about management and governance. The
idea that a few directors and managers should run the organization is so entrenched in
people’s consciousness that it’s hardly ever questioned.
Another stumbling block is that distributed management is still a rarity — few people have
had any experience with it. Although sociocracy is in place in about 100 small and
medium-size organizations, some of which have been using it for decades, there are no
applications in multinational companies (except for a small unit within Royal Dutch Shell
that applied the principles for more than a decade, with good results in such areas as
productivity and employee satisfaction). The consulting firm HolacracyOne says a few
hundred organizations have recently been “trying out” holacracy, but only Ternary has
used it for more than five years.
It’s no surprise, then, that misconceptions have grown up around holacracy. But if the
practice is to find its way into more than just a handful of companies, then business
founders, managers, and directors need to have a good understanding of what’s true about
holacracy and what isn’t.
Misconception 1: Holacracy means abandonment of corporate hierarchy. Although
holacratic and other distributed-management approaches are fundamentally different
from the command-and-control structures that prevail in many organizations, they aren’t
nonhierarchical, as many believe. A truly nonhierarchical structure is a scary prospect for
most businesspeople, and for good reason: a lack of a hierarchy leaves an organization
without a clear sense of who is accountable for what.
Instead, in holacracy and sociocracy, self-organization coexists with and complements a
robust hierarchy. Each staff member has a powerful voice, and employees are organized
into self-managed circles. Power and authority can flow in virtually any direction, but with
an eye to maximizing efficiency, the hierarchy helps the organization determine how many
circles should exist, identify which circle should decide on a particular idea or proposal,
and create links between circles. Moreover, instead of conferring authority, the hierarchy
establishes an unambiguous sequence of levels of accountability.
The interplay between self-organization and hierarchy has enhanced the resilience of
Endenburg Elektrotechniek, the Dutch engineering company that initially pioneered
sociocracy. A rough schematic drawing of the company’s structure would show a top circle,
consisting of the board of directors, above and slightly overlapping a general-management
circle, which is above and slightly overlapping the circles for units such as manufacturing
and technical installations.
When Endenburg Elektrotechniek lost more than one-third of its sales, its CEO saw no
solution other than to lay off 60 employees. The next day, an employee called a meeting of
his unit circle to discuss an alternative: delaying the layoff for a few weeks and shifting
people into a concentrated sales and marketing effort. The unit circle appointed him to
advocate for the proposal to the company’s general-management circle, which decided to
have the proposal discussed by the board of directors’ (or top) circle. The board authorized
the proposal, and all available employees got a one-day crash course in customer
acquisition. Within several weeks, the effort had won enough new projects to make the
layoffs unnecessary. Although the company’s largest business line was sized down
substantially, growth in several other products and services led to a much more diversified
customer base.
This example demonstrates that each staff member has a powerful voice, with the circular
hierarchy processing ideas and proposals. Anyone can signal problems and raise ideas in
the circle he or she belongs to, with functional leaders (appointed in the next-higher circle)
and delegates (appointed in the lower circle) acting as links between circles. The system
also maintains unambiguous accountability and decision authority: For example, major
investments need to be authorized by the directors in the top circle, but the directors will
not interfere with how people are assigned to key roles in any of the other circles.
Endenburg Elektrotechniek and many other applications of sociocracy suggest that “self-
organization” and “hierarchy,” rather than being contrasting ideas, are complementary
tools in turning distributed management into a system with a limited number of circles
conducting very creative but efficient meetings. Interestingly, in companies like
Endenburg Elektrotechniek, the general-management circle will typically meet twice per
month, and all other circles will meet (on average) four to six times a year, unless there is
an exceptional situation like the one previously discussed.
Misconception 2: The goal justifies any means. Another common belief is that once the
blueprint of holacracy has been adopted, any implementation strategy will do to get the
company there. At Zappos, Hsieh’s ultimatum to employees — embrace holacracy or accept
a buyout — illustrates this misconception. A “hit and run” strategy toward empowerment
creates a major misalignment between the CEO’s empowerment rhetoric and the reality of
the arbitrary use of absolute authority. Employees are left in utter confusion, which can
prevent the company from fully implementing the intended change.
Many such experiences demonstrate that the implementation process must itself be
holacratic, drawing on employees’ ideas and ensuring that everyone understands and
embraces the changes. The transition can’t come about as a directive from the top. In fact,
the best approach is for top executives to get out of the way while a dedicated project team
(possibly including external experts) orchestrates adoption and implementation.
The pace of change must also be deliberate and well-orchestrated. The brand-strategy
consulting firm Fabrique, for example, first defined shared objectives and had a project
team pilot-test whether sociocracy served to realize those objectives. Then, on the basis of
the evidence collected, it had the project team, together with the executive team, make a
shared “go/no-go” decision (the result was a “go”). An approach like this signals top
managers’ deep understanding of distributed management and leadership and establishes
them as role models.
Misconception 3: Distributed management does not affect the C-suite or boardroom.
Many attempts to introduce distributed management fail because executives and directors
take themselves out of the equation. They assume that the change affects only operational
and middle managers and that their own discretionary powers will remain intact. They
don’t grasp that holacracy represents a fundamental redistribution of power and authority
throughout the organization.
For example, corporate-governance systems and financial ownership often need to change
in a holacracy. Zappos now falls under Amazon’s ownership umbrella; will Amazon’s
ownership ultimately work against Zappos’s experiment with holacracy? And what if
Hsieh’s successor someday turns away from holacratic principles?
Companies such as Endenburg Elektrotechniek and MyWheels, also in the Netherlands,
and the Terra Viva Group in Brazil have taken steps to restructure financially in an effort to
ensure their sustainability. Terra Viva Group, a formerly family-owned agribusiness
company that adopted sociocracy to manage its rapid growth, created a shareholders’
association that owns 51% of the company so that no single large shareholder, such as a
family member, can interrupt capital investments by leaving the company. Terra Viva now
“largely owns itself,” says its current CEO, Frans Schoenmaker.
Too often, CEOs treat distributed management as their latest toy, and they don’t think
through its full implications. Awareness of the misconceptions that have grown up around
sociocracy and holacracy can help a company avoid the kind of turbulence and confusion
seen at Zappos and turn distributed management into a highly productive system that
ensures the firm’s long-term productivity, viability, and resilience.
Georges Romme is a professor of entrepreneurship and innovation at Eindhoven University of
Technology in the Netherlands and author of the forthcoming The Quest for Professionalism: The Case of
Management and Entrepreneurship (Oxford University Press).
Related Topics: ORGANIZATIONAL CULTURE
This article is about ORGANIZATIONAL STRUCTURE
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8 COMMENTS
Graham Boyd 3 months ago
@Georges, your article compares well with my experience using Holacracy over the past 5 years in 3
different companies. In the latest one I brought in Holacracy slowly - in essence, prototyping the minimum
viable next step each time. But, the hierarchy was retained, informed by the Requisite Organisation design
of Jaques, and Otto Laske's CDF. So self-organising was balanced with hierarchy in a dynamic way. See
here for more details: http://www.enliveningedge.org/organizations/living-the-re-invented-organization/.
One big addition we made was bringing in coaching for all. Holacracy is often used just as a technical
solution to an adaptive challenge. In part because Holacracy often is seen as just technical; and because it
is ineffective at addressing inter- and intra-personal tensions. So I developed and deployed a peer to peer
coaching methodology to support each person's adaptive journey.
Finally, investors and board. I'm starting up a new company and using the Fair Shares model of Prof Rory
Ridley-Duff of Sheffield University to insure the board will reflect all voices / stakeholders, and all capitals.
Not just financial.
Excellent article - and bringing some much-needed input on using Holacracy and Sociocracy effectively.
Thanks for writing!
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